Download as PDF
Federal Register / Vol. 82, No. 15 / Wednesday, January 25, 2017 / Notices
Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such
filing also will be available for
inspection and copying at the principal
office of OCC and on OCC’s Web site at
http://www.theocc.com/components/
docs/legal/rules_and_bylaws/sr_occ_17_
001.pdf.
All comments received will be posted
without change; the Commission does
not edit personal identifying
information from submissions. You
should submit only information that
you wish to make available publicly.
All submissions should refer to File
Number SR–OCC–2017–001 and should
be submitted on or before February 15,
2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
Authority.21
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01605 Filed 1–24–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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January 18, 2017.
I. Introduction
On November 29, 2016, Chicago
Board Options Exchange, Incorporated
(the ‘‘Exchange’’ or ‘‘CBOE’’) filed with
the Securities and Exchange
Commission (‘‘Commission’’), pursuant
CFR 200.30–3(a)(12).
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Three components of AIM were
approved by the Commission on a pilot
basis (the ‘‘Pilot’’): (1) That there is no
minimum size requirement for orders to
be eligible for the AIM; (2) that the AIM
will conclude prematurely anytime
there is a quote lock on the Exchange
pursuant to Rule 6.45A(d); 7 and (3) that
there is no minimum size requirement
for orders to be eligible for the FLEX
AIM.8 In connection with the Pilot, the
Exchange has provided certain data to
the Commission to provide supporting
evidence that, among other things, there
is meaningful competition for all size
orders and that there is an active and
liquid market functioning on the
Exchange outside of the AIM.9 The Pilot
is currently set to expire on January 18,
2017.10 The Exchange proposes to make
the Pilot permanent.
II. Description of the Proposal
A. No Minimum Size Requirement Pilot
In support of its proposal, and in
addition to data submitted to the
Commission on a monthly and
confidential basis since the Pilot’s
inception, the Exchange has provided
the Commission with data for AIM
executions from January through June
2015 (the ‘‘Report’’).11 The Exchange
believes the data provides evidence that
AIM offers meaningful competition for
all size orders and that there is an active
and liquid market functioning on the
Exchange outside of AIM.12 The
Exchange further notes that the data
provided in the Report demonstrates the
price improvement benefits of AIM.13
According to the Exchange, approving
the no minimum size pilot on a
permanent basis will allow AIM to
continue to offer meaningful price
improvement and will not have an
adverse effect on the market functioning
on the Exchange outside of AIM.14
Specifically, the Report contains eight
categories of non-customer and
customer auction data, as well as three
categories of summary auction data,
during the period from January through
AIM exposes certain orders
electronically to an auction process to
provide these orders with the
opportunity to receive an execution at
an improved price.5 In addition, the
AIM auction process for FLEX Options
(‘‘FLEX AIM’’) exposes certain FLEX
Options orders electronically to an
auction process to provide these orders
with the opportunity to receive an
execution at an improved price.6 The
AIM and FLEX AIM auctions are
available only for orders that a Trading
Permit Holder represents as agent
(‘‘Agency Order’’) and for which a
second order of the same size as the
Agency Order (and on the opposite side
of the market) is also submitted
(effectively stopping the Agency Order
at a given price).
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 See Securities Exchange Act Release No. 79499
(December 7, 2016), 81 FR 90012 (‘‘Notice’’).
4 In Amendment No. 1, the Exchange described
additional data relating to complex orders
submitted through AIM and provided additional
support for its proposal to approve the aspects of
AIM currently operating on a pilot basis as
applicable to complex orders. To promote
transparency of its proposed amendment, when
CBOE filed Amendment No. 1 with the
Commission, it also submitted Amendment No. 1 as
a comment letter to the file, which the Commission
posted on its Web site and placed in the public
comment file for SR–CBOE–2016–084 (available at
https://www.sec.gov/comments/sr-cboe-2016-084/
cboe2016084-1475098-130456.pdf). The Exchange
also posted a copy of its Amendment No. 1 on its
Web site (http://www.cboe.com/aboutcboe/legal/
submittedsecfilings.aspx), when it filed it with the
Commission.
5 See CBOE Rule 6.74A. See also Securities
Exchange Release No. 53222 (February 3, 2006), 71
FR 7089 (February 10, 2006) (SR–CBOE–2005–60)
(‘‘AIM Approval Order’’).
6 See Securities Exchange Release No. 66702
(March 30, 2012), 77 FR 20675 (April 5, 2012) (SR–
CBOE–2011–123) (‘‘FLEX AIM Approval Order’’).
2 17
Self-Regulatory Organizations;
Chicago Board Options Exchange,
Incorporated; Notice of Filing of
Amendment No. 1, and Order Granting
Accelerated Approval of a Proposed
Rule Change, as Modified by
Amendment No. 1, To Amend
Exchange Rules Related to the
Automated Improvement Mechanism
21 17
to the provisions of Section 19(b)(1) of
the Securities Exchange Act of 1934
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 a
proposed rule change to make
permanent make permanent those
aspects of its Automated Improvement
Mechanism (‘‘AIM’’ or ‘‘Auction’’) that
are currently operating on a pilot basis.
The proposed rule change was
published for comment in the Federal
Register on December 13, 2016.3 The
Commission received no comments
regarding the proposal. On January 6,
2017, the Exchange filed Amendment
No. 1 to the proposed rule change.4 The
Commission is publishing this notice to
solicit comments on Amendment No. 1
from interested persons, and is
approving the proposed rule change, as
modified by Amendment No. 1, on an
accelerated basis.
1 15
[Release No. 34–79836; File No. SR–CBOE–
2016–084]
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7 A quote lock occurs when a CBOE MarketMaker’s quote interacts with the quote of another
CBOE Market-Maker (i.e., when internal quotes
lock).
8 The pilot for the FLEX AIM auction process was
modeled after the pilot for non-FLEX Options. See
FLEX AIM Approval Order, supra note 6.
9 See Interpretation and Policy .03 to CBOE Rule
6.74A and Interpretation and Policy .03 to CBOE
Rule 24B.5A.
10 See Securities Exchange Act Release No. 78316
(July 13, 2016) 81 FR 46975 (July 19, 2016) (SR–
CBOE–2016–056).
11 See Exhibit 3 to SR–CBOE–2016–084.
12 See Notice, supra note 3, at 90013–14.
13 See id. The Commission notes that AIM
currently requires price improvement for Agency
Orders of fewer than 50 contracts. See CBOE Rule
6.74A(a)(3).
14 See Notice, supra note 3, at 90014.
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June 2015.15 Each of the eight categories
is divided into subcategories based on
the spread of the National Best Bid or
Offer (‘‘NBBO’’) at the time an Auction
was initiated. The data is further
divided into the number of orders that
were auctioned within each particular
subcategory. Finally, for each
subcategory, the Exchange identified the
per contract price improvement that
occurred at each NBBO spread, the
average number of participants
responding to the Auctions plus the
initiator, the total volume the initiator
received, the average percentage of
orders the initiator received, and the
percentage of contracts received by the
Auction initiator.
The summary of all Auctions
demonstrates that AIM offers
competition and price improvement
because the vast majority of contracts
traded via AIM received price
improvement beyond the NBBO.
Specifically, with regards to Customer
AIM auctions, of the 54,243,091
contracts traded via AIM during the
Report period, 41,278,408 contracts
received price improvement beyond the
NBBO.16 In addition, of the 54,504,717
total contracts traded via AIM during
the Report period, 41,514,731 contracts
received price improvement beyond the
NBBO.17
For complex orders that are otherwise
eligible for AIM,18 the AIM eligibility
requirements of CBOE Rule 6.74A(a)
apply in the same manner as they apply
for simple orders. Thus, a complex
15 See Exhibit 3 to SR–CBOE–2016–084. The
various categories contained in the Report include:
(1) Non-Customer Auction/Under 50 Contracts/
CBOE not at NBBO; (2) Non-Customer Auction/
Under 50 Contracts/CBOE at NBBO; (3) NonCustomer Auction/50 Contracts and over/CBOE not
at NBBO; (4) Non-Customer Auction/50 Contracts
and over/CBOE at NBBO; (5) Customer Auction/
Under 50 Contracts/CBOE not at NBBO; (6)
Customer Auction/Under 50 Contracts/CBOE at
NBBO; (7) Customer Auction/50 Contracts and
over/CBOE not at NBBO; (8) Customer Auction/50
Contracts and over/CBOE at NBBO; (9) Summary of
all Non-Customer Auctions for the Period; (10)
Summary of all Customer Auctions for the Period;
and (11) Summary of all Auctions for the Period.
16 See Exhibit 3 to SR–CBOE–2016–084.
17 See id.
18 A ‘‘complex order’’ is any order involving the
execution of two or more different options series in
the same underlying security occurring at or near
the same time in a ratio that is equal to or greater
than one-to-three (.333) and less than or equal to
three-to-one (3.00) (or such lower ratio as may be
determined by the Exchange on a class-by-class
basis) and for the purpose of executing a particular
investment strategy. For the purpose of applying the
aforementioned ratios to complex orders comprised
of both mini-option contracts and standard option
contracts, ten (10) mini-option contracts will
represent one (1) standard option contract. Only
those complex orders with no more than the
applicable number of legs, as determined by the
Exchange on a class-by-class basis, are eligible for
processing. See CBOE Rule 6.53C(a)(1).
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order may be executed via AIM at a net
debit or net credit price provided, for
example, that an Agency Order that is
a complex order of 50 contracts or more
(as determined by the size of the
smallest leg) is stopped at the better of
the NBBO or the Agency Order’s limit
price (if the order is a limit order).19
Similarly, a complex order of fewer than
50 contracts (as determined by the size
of the smallest leg) may be executed via
AIM at a net debit or net credit price
provided that the Agency Order is
stopped at the better of (A) the NBBO
price improved by one minimum price
improvement increment, which
increment shall be determined by the
Exchange but may not be smaller than
one cent; or (B) the Agency Order’s limit
price (if the order is a limit order).20
In September 2016, there were 5,982
complex orders processed via AIM with
an order size of 50 contracts or more (as
determined by the size of the smallest
leg), and there were 214,986 complex
orders processed via AIM with an order
size of fewer than 50 contracts (as
determined by the size of the smallest
leg).21 With regards to having no
minimum size requirement for orders to
be eligible for the Auction, the Exchange
believes small complex orders benefit
from the price improvement offered by
AIM in the same manner that small
simple orders benefit from the price
improvement offered by AIM, and that
it is therefore appropriate to approve the
no minimum size pilot on a permanent
basis.22 The Exchange believes that, in
addition to the simple order market, the
complex order market both within and
outside of AIM is robust, and therefore
it is appropriate to approve the no
minimum size pilot on a permanent
basis.
B. Early Conclusion of the AIM
CBOE Rule 6.74A(b)(2)(E) provides
that the AIM will conclude prematurely
anytime there is a quote lock on the
Exchange pursuant to CBOE Rule
6.45A(d). This condition is operating as
part of the current Pilot.23
As with the no minimum size
requirement, the Exchange has gathered
data on the number of times an AIM
auction was terminated early because of
a quote lock on the Exchange pursuant
to CBOE Rule 6.45A(d). From January
19 See
CBOE Rule 6.74A(a)(2).
CBOE Rule 6.74A(a)(3). The Commission
notes that, as with simple orders, AIM currently
requires price improvement for complex Agency
Orders where the smallest leg is fewer than 50
contracts.
21 See Amendment No. 1.
22 See id.
23 See Interpretation and Policy .06 to CBOE Rule
6.74A.
20 See
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through June 2015, for example, there
were less than two Auctions ended early
per month because of a quote lock.
Thus, for both simple and complex
orders, due to the infrequency with
which a quote lock terminates an AIM
auction, the Exchange believes
permanent approval of the pilot
program to end AIM auctions early
when there is a quote lock on the
Exchange will have a de minimis impact
on the marketplace.24
C. FLEX AIM Pilot
Currently, in order to initiate a FLEX
AIM auction, the initiating Trading
Permit Holder must stop the entire
Agency Order as principal or with a
solicited order at the better of the BBO
or the Agency Order’s limit price. For
purposes of CBOE Chapter XXIVB, the
term ‘‘BBO’’ means the best bid or offer,
or both, as applicable, entered in
response to a Request for Quotes
(‘‘RFQ’’) or resting in the electronic
book.25 According to the Exchange,
generally speaking, there is no existing
BBO prior to a FLEX AIM because there
either has not been an RFQ or a FLEX
Order with the same terms as the order
to be auctioned in FLEX AIM.26
Therefore, the Exchange notes, the data
does not show observable price
improvement beyond the BBO because,
generally speaking, no BBO exists prior
to a FLEX AIM.27 The Exchange has
proposed to modify its FLEX AIM rules
to require the Agency Order to be
stopped at the better of the BBO price
improved by one minimum price
increment or the Agency Order’s limit
price, although the Exchange does not
believe there will be any difference in
the way FLEX AIM functions. The
Exchange notes that there likely will
continue to be no BBO prior to a FLEX
AIM; however, the Exchange believes
FLEX AIM will continue to offer the
possibility for price improvement
beyond the initiator’s stop price.28
24 See Notice, supra note 3, at 90014. See also
Amendment No. 1. The Exchange further notes that
modifying the ‘‘Quote Lock’’ timer, which allows
quotes from two or more CBOE Market-Makers to
remain locked for a given time interval prior to
trading with one another, will not impact AIM. See
CBOE Rule 6.45A(d)(i)(B) and RG16–158.
25 See CBOE Rule 24B.1(a). RFQ is defined as the
initial request supplied by a Submitting Trading
Permit Holder to initiate FLEX bidding and offering.
See CBOE Rule 24B.1(r).
26 FLEX Order is defined as (i) FLEX bids and
offers entered by FLEX Market-Makers and (ii)
orders to purchase and orders to sell FLEX Options
entered by FLEX Traders, in each case into the
electronic book. See CBOE Rule 24B.1(j).
27 See Notice, supra note 3, at 90014.
28 See id.
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III. Discussion and Commission
Findings
After careful review, the Commission
finds that the proposed rule change is
consistent with the requirements of the
Act and the rules and regulations
thereunder applicable to a national
securities exchange and, in particular,
with Section 6(b) of the Act.29 In
particular, the Commission finds that
the proposed rule change is consistent
with Section 6(b)(5) of the Act,30 which
requires, among other things, that the
rules of a national securities exchange
be designed to prevent fraudulent and
manipulative acts and practices, to
promote just and equitable principles of
trade, to foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and, in
general, to protect customers, issuers,
brokers and dealers.
As part of its proposal, the Exchange
provided summary data on Exhibit 3 of
its filing for the period January through
June 2015, which the Exchange and
Commission both publicly posted on
their respective Web sites. Among other
things, this data is useful in assessing
the level of price improvement in the
Auction, in particular for orders of
fewer than 50 contracts; the degree of
competition for order flow in such
Auctions; and a comparison of liquidity
in the Auctions with liquidity on the
Exchange generally.31 Based on the data
provided by the Exchange, the
Commission believes that the
Exchange’s price improvement auction
generally delivers a meaningful
opportunity for price improvement to
orders, including orders for fewer than
50 contracts. In addition, the
Commission notes that AIM currently
requires price improvement for Agency
Orders of fewer than 50 contracts.32 The
Commission further believes that the
Exchange’s proposed modification to
the FLEX AIM to require the Agency
Order to be stopped at the better of the
BBO price improved by one minimum
price increment or the Agency Order’s
limit price will better align the FLEX
AIM auction rules with those applicable
to standard AIM auctions and will
29 15 U.S.C. 78f(b). In approving this proposed
rule change, the Commission has considered the
proposed rule’s impact on efficiency, competition,
and capital formation. See 15 U.S.C. 78c(f).
30 15 U.S.C. 78f(b)(5).
31 See Exhibit 3 to SR–CBOE–2016–084.
32 See CBOE Rule 6.74A(a)(3).
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provide price improvement for
additional FLEX AIM orders.
The Commission believes that the
data provided by the Exchange support
its proposal to make the Pilot
permanent. The data demonstrate that
the Auction generally provides price
improvement opportunities to orders,
including orders of retail customers;
that there is meaningful competition for
orders on the Exchange; and that there
exists an active and liquid market
functioning on the Exchange outside of
the Auction.33 Thus, the Commission
has determined to approve the
Exchange’s proposed revisions to
Interpretations and Policies .03 and .06
to Rule 6.74A, Rule 24B.5A(a)(2), and
Interpretations and Policies .03 to Rule
24B.5A, and to approve the Pilot, as
proposed to be modified, on a
permanent basis.
IV. Solicitation of Comments on
Amendment No. 1
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether Amendment No. 1 is
consistent with the Act. Comments may
be submitted by any of the following
methods:
Electronic Comments
• Use the Commission’s Internet
comment form (http://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
CBOE–2016–084 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–CBOE–2016–084. This file
number should be included on the
subject line if email is used. To help the
Commission process and review your
comments more efficiently, please use
only one method. The Commission will
post all comments on the Commission’s
Internet Web site (http://www.sec.gov/
rules/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–CBOE–
2016–084 and should be submitted on
or before February 15, 2017.
V. Accelerated Approval of Proposed
Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to
approve the proposed rule change, as
modified by Amendment No. 1, prior to
the 30th day after the date of
publication of the notice of Amendment
No. 1 in the Federal Register. As noted
above, in Amendment No. 1, the
Exchange described additional data
relating to complex orders submitted
through AIM and provided further
support for its proposal to approve the
aspects of AIM currently operating on a
pilot basis as applicable to complex
orders. Because Amendment No. 1
provides additional support for the
Exchange’s original proposal and does
not make any substantive changes to the
proposal, the Commission believes that
good cause exists for accelerated
approval of the proposed rule change, as
modified by Amendment No. 1. The
Commission further notes that the
original proposal was subject to a 21 day
comment period and no comments were
received on the proposal. Accordingly,
the Commission finds good cause,
pursuant to Section 19(b)(2) of the
Act,34 to approve the proposed rule
change prior to the 30th day after the
date of publication of the notice of
Amendment No. 1 in the Federal
Register.
VI. Conclusion
IT IS THEREFORE ORDERED,
pursuant to Section 19(b)(2) of the
Act,35 that the proposed rule change
(SR–CBOE–2016–084), as modified by
Amendment No. 1, be and hereby is
approved on an accelerated basis.
34 15
33 See
PO 00000
Exhibit 3 to SR–CBOE–2016–084.
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U.S.C. 78s(b)(2).
U.S.C. 78s(b)(2).
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For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.36
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–01614 Filed 1–24–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–79838; File No. SR–
BatsEDGX–2017–05]
Self-Regulatory Organizations; Bats
EDGX Exchange, Inc.; Notice of Filing
and Order Granting Accelerated
Approval of a Proposed Rule Change
to EDGX Rule 21.19, Bats Auction
Mechanism, as it Applies to the Equity
Options Platform
January 18, 2017.
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Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934 (the
‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on January
13, 2017, Bats EDGX Exchange, Inc. (the
‘‘Exchange’’ or ‘‘EDGX’’) filed with the
Securities and Exchange Commission
(the ‘‘Commission’’) the proposed rule
change as described in Items I and II
below, which Items have been prepared
by the Exchange. The Commission is
publishing this notice to solicit
comments on the proposed rule change
from interested persons and, for the
reasons discussed below, is approving
the proposal on an accelerated basis.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange filed a proposal for the
Exchange’s equity options platform
(‘‘EDGX Options’’) concerning a price
improvement mechanism operated by
EDGX Options, the Bats Auction
Mechanism (‘‘BAM’’ or ‘‘BAM
Auction’’), which was recently
approved by the Commission.3 A
specific aspect of BAM is currently
operating on a pilot basis (‘‘Pilot’’),
which is set to expire on January 18,
2017.4 The Pilot concerns the fact that
there is no minimum size requirement
for orders to be eligible for a BAM
Auction, as described below. The
Exchange seeks to make the Pilot
permanent but does not propose any
other changes to BAM.
The text of the proposed rule change
is available at the Exchange’s Web site
36 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 79718
(January 3, 2017) (SR–BatsEDGX–2016–41).
4 See id.
1 15
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at www.bats.com, at the principal office
of the Exchange, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
Exchange included statements
concerning the purpose of and basis for
the proposed rule change and discussed
any comments it received on the
proposed rule change. The text of these
statements may be examined at the
places specified in Item III below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this filing is to make
permanent an aspect of BAM that is
operating as a Pilot by removing
Interpretation and Policy .05 from Rule
21.19.
Background
The Exchange proposed BAM in
September of 2016 as a price
improvement mechanism on the
Exchange.5 The Proposal was amended
by the Exchange on December 15, 2016,6
and approved, as amended, on January
3, 2017.7 BAM Auctions were launched
on the Exchange effective January 4,
2017. BAM includes functionality in
which a Member (an ‘‘Initiating
Member’’) may electronically submit for
execution an order it represents as agent
on behalf of a Priority Customer,8 broker
dealer, or any other person or entity
(‘‘Agency Order’’) against principal
interest or against any other order it
represents as agent (an ‘‘Initiating
Order’’) provided it submits the Agency
5 See Securities Exchange Act Release No. 78988
(September 29, 2016), 81 FR 69172 (October 5,
2016) (SR–BatsEDGX–2016–41) (‘‘Proposal’’).
6 See supra, note 3; see also SR–BatsEDGX–2016–
41 Amendment No. 1, available at: http://
www.bats.com/us/options/regulation/rule_filings/
edgx/.
7 See supra, note 3.
8 The term ‘‘Priority Customer’’ means any person
or entity that is not: (A) A broker or dealer in
securities; or (B) a Professional. The term ‘‘Priority
Customer Order’’ means an order for the account of
a Priority Customer. See Rule 16.1(a)(45). A
‘‘Professional’’ is any person or entity that: (A) is
not a broker or dealer in securities; and (B) places
more than 390 orders in listed options per day on
average during a calendar month for its own
beneficial account(s). All Professional orders shall
be appropriately marked by Options Members. See
Rule 16.1(a)(46).
PO 00000
Frm 00067
Fmt 4703
Sfmt 4703
Order for electronic execution into the
BAM Auction pursuant Rule 21.19. All
options traded on EDGX Options are
eligible for BAM.
Pilot Program
One component of BAM as approved
by the Commission is currently
operating as a Pilot, which is set to
expire on January 18, 2017. The Pilot
concerns that there is no minimum size
requirement for orders to be eligible for
a BAM Auction. The Exchange now
seeks to remove Interpretation and
Policy .05 from Rule 21.19 so that the
Pilot may operate on a permanent basis.
Pursuant to the Pilot, there is no
minimum size requirement for orders to
be eligible for a BAM Auction. During
this Pilot, the Exchange agreed to
submit certain data, periodically as
required by the Commission, to provide
supporting evidence that, among other
things, there is meaningful competition
for all size orders and that there is an
active and liquid market functioning on
the Exchange outside of the Auction
mechanism. The Exchange proposed to
adopt this provision on a pilot basis
based on the fact that multiple other
options exchanges have a similar
provision with respect to their own
price improvement mechanisms and
such provisions have been operating on
a pilot basis.9 Although the Exchange
only recently launched BAM and does
not yet have meaningful data to analyze
pursuant to the Pilot, the Exchange is
proposing to make the Pilot permanent
based on the recent filings by multiple
other options exchanges to make
analogous provisions permanent.10 The
9 See, e.g., Securities Exchange Act Release Nos.
53222 (February 3, 2006), 71 FR 7089 (February 10,
2006) (SR–CBOE–2005–60) (order approving the
CBOE AIM price improvement mechanism,
including that there is no minimum size
requirement on a pilot basis); 73590 (November 13,
2014), 79 FR 68919 (November 19, 2014) (SR–
MIAX–2014–56) (order approving the MIAX PRIME
price improvement mechanism, including that there
is no minimum size requirement on a pilot basis);
76301 (October 29, 2015), 80 FR 68347 (November
4, 2015) (SR–BX–2015–032) (order approving the
NASDAQ BX PRISM price improvement
mechanism, including that there is no minimum
size requirement on a pilot basis).
10 See, e.g., Securities Exchange Act Release Nos.
79499 (December 7 2016), 81 FR 90012 (December
13, 2016) (SR–CBOE–2016–084) (proposal to
modify the CBOE AIM price improvement
mechanism including the proposal to make the
process permanent, specifically that there is no
minimum size requirement); 79500 (December 7,
2016), 81 FR 90030 (December 13, 2016) (SR–
MIAX–2016–46) (proposal to modify the MIAX
PRIME price improvement mechanism including
the proposal to make the process permanent,
specifically that there is no minimum size
requirement); 79465 (December 5, 2016), 81 FR
79465 [sic] (December 9, 2016) (SR–BX–2016–063)
(proposal to modify certain aspects of the NASDAQ
BX PRISM price improvement mechanism
including the proposal to make the process
E:\FR\FM\25JAN1.SGM
25JAN1

Agencies

[Federal Register Volume 82, Number 15 (Wednesday, January 25, 2017)]
[Notices]
[Pages 8459-8462]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-01614]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-79836; File No. SR-CBOE-2016-084]
Self-Regulatory Organizations; Chicago Board Options Exchange,
Incorporated; Notice of Filing of Amendment No. 1, and Order Granting
Accelerated Approval of a Proposed Rule Change, as Modified by
Amendment No. 1, To Amend Exchange Rules Related to the Automated
Improvement Mechanism
January 18, 2017.
I. Introduction
On November 29, 2016, Chicago Board Options Exchange, Incorporated
(the ``Exchange'' or ``CBOE'') filed with the Securities and Exchange
Commission (``Commission''), pursuant to the provisions of Section
19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule
19b-4 thereunder,\2\ a proposed rule change to make permanent make
permanent those aspects of its Automated Improvement Mechanism (``AIM''
or ``Auction'') that are currently operating on a pilot basis. The
proposed rule change was published for comment in the Federal Register
on December 13, 2016.\3\ The Commission received no comments regarding
the proposal. On January 6, 2017, the Exchange filed Amendment No. 1 to
the proposed rule change.\4\ The Commission is publishing this notice
to solicit comments on Amendment No. 1 from interested persons, and is
approving the proposed rule change, as modified by Amendment No. 1, on
an accelerated basis.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 79499 (December 7,
2016), 81 FR 90012 (``Notice'').
\4\ In Amendment No. 1, the Exchange described additional data
relating to complex orders submitted through AIM and provided
additional support for its proposal to approve the aspects of AIM
currently operating on a pilot basis as applicable to complex
orders. To promote transparency of its proposed amendment, when CBOE
filed Amendment No. 1 with the Commission, it also submitted
Amendment No. 1 as a comment letter to the file, which the
Commission posted on its Web site and placed in the public comment
file for SR-CBOE-2016-084 (available at https://www.sec.gov/comments/sr-cboe-2016-084/cboe2016084-1475098-130456.pdf). The
Exchange also posted a copy of its Amendment No. 1 on its Web site
(http://www.cboe.com/aboutcboe/legal/submittedsecfilings.aspx), when
it filed it with the Commission.
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II. Description of the Proposal
AIM exposes certain orders electronically to an auction process to
provide these orders with the opportunity to receive an execution at an
improved price.\5\ In addition, the AIM auction process for FLEX
Options (``FLEX AIM'') exposes certain FLEX Options orders
electronically to an auction process to provide these orders with the
opportunity to receive an execution at an improved price.\6\ The AIM
and FLEX AIM auctions are available only for orders that a Trading
Permit Holder represents as agent (``Agency Order'') and for which a
second order of the same size as the Agency Order (and on the opposite
side of the market) is also submitted (effectively stopping the Agency
Order at a given price).
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\5\ See CBOE Rule 6.74A. See also Securities Exchange Release
No. 53222 (February 3, 2006), 71 FR 7089 (February 10, 2006) (SR-
CBOE-2005-60) (``AIM Approval Order'').
\6\ See Securities Exchange Release No. 66702 (March 30, 2012),
77 FR 20675 (April 5, 2012) (SR-CBOE-2011-123) (``FLEX AIM Approval
Order'').
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Three components of AIM were approved by the Commission on a pilot
basis (the ``Pilot''): (1) That there is no minimum size requirement
for orders to be eligible for the AIM; (2) that the AIM will conclude
prematurely anytime there is a quote lock on the Exchange pursuant to
Rule 6.45A(d); \7\ and (3) that there is no minimum size requirement
for orders to be eligible for the FLEX AIM.\8\ In connection with the
Pilot, the Exchange has provided certain data to the Commission to
provide supporting evidence that, among other things, there is
meaningful competition for all size orders and that there is an active
and liquid market functioning on the Exchange outside of the AIM.\9\
The Pilot is currently set to expire on January 18, 2017.\10\ The
Exchange proposes to make the Pilot permanent.
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\7\ A quote lock occurs when a CBOE Market-Maker's quote
interacts with the quote of another CBOE Market-Maker (i.e., when
internal quotes lock).
\8\ The pilot for the FLEX AIM auction process was modeled after
the pilot for non-FLEX Options. See FLEX AIM Approval Order, supra
note 6.
\9\ See Interpretation and Policy .03 to CBOE Rule 6.74A and
Interpretation and Policy .03 to CBOE Rule 24B.5A.
\10\ See Securities Exchange Act Release No. 78316 (July 13,
2016) 81 FR 46975 (July 19, 2016) (SR-CBOE-2016-056).
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A. No Minimum Size Requirement Pilot
In support of its proposal, and in addition to data submitted to
the Commission on a monthly and confidential basis since the Pilot's
inception, the Exchange has provided the Commission with data for AIM
executions from January through June 2015 (the ``Report'').\11\ The
Exchange believes the data provides evidence that AIM offers meaningful
competition for all size orders and that there is an active and liquid
market functioning on the Exchange outside of AIM.\12\ The Exchange
further notes that the data provided in the Report demonstrates the
price improvement benefits of AIM.\13\ According to the Exchange,
approving the no minimum size pilot on a permanent basis will allow AIM
to continue to offer meaningful price improvement and will not have an
adverse effect on the market functioning on the Exchange outside of
AIM.\14\
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\11\ See Exhibit 3 to SR-CBOE-2016-084.
\12\ See Notice, supra note 3, at 90013-14.
\13\ See id. The Commission notes that AIM currently requires
price improvement for Agency Orders of fewer than 50 contracts. See
CBOE Rule 6.74A(a)(3).
\14\ See Notice, supra note 3, at 90014.
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Specifically, the Report contains eight categories of non-customer
and customer auction data, as well as three categories of summary
auction data, during the period from January through
[[Page 8460]]
June 2015.\15\ Each of the eight categories is divided into
subcategories based on the spread of the National Best Bid or Offer
(``NBBO'') at the time an Auction was initiated. The data is further
divided into the number of orders that were auctioned within each
particular subcategory. Finally, for each subcategory, the Exchange
identified the per contract price improvement that occurred at each
NBBO spread, the average number of participants responding to the
Auctions plus the initiator, the total volume the initiator received,
the average percentage of orders the initiator received, and the
percentage of contracts received by the Auction initiator.
---------------------------------------------------------------------------
\15\ See Exhibit 3 to SR-CBOE-2016-084. The various categories
contained in the Report include: (1) Non-Customer Auction/Under 50
Contracts/CBOE not at NBBO; (2) Non-Customer Auction/Under 50
Contracts/CBOE at NBBO; (3) Non-Customer Auction/50 Contracts and
over/CBOE not at NBBO; (4) Non-Customer Auction/50 Contracts and
over/CBOE at NBBO; (5) Customer Auction/Under 50 Contracts/CBOE not
at NBBO; (6) Customer Auction/Under 50 Contracts/CBOE at NBBO; (7)
Customer Auction/50 Contracts and over/CBOE not at NBBO; (8)
Customer Auction/50 Contracts and over/CBOE at NBBO; (9) Summary of
all Non-Customer Auctions for the Period; (10) Summary of all
Customer Auctions for the Period; and (11) Summary of all Auctions
for the Period.
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The summary of all Auctions demonstrates that AIM offers
competition and price improvement because the vast majority of
contracts traded via AIM received price improvement beyond the NBBO.
Specifically, with regards to Customer AIM auctions, of the 54,243,091
contracts traded via AIM during the Report period, 41,278,408 contracts
received price improvement beyond the NBBO.\16\ In addition, of the
54,504,717 total contracts traded via AIM during the Report period,
41,514,731 contracts received price improvement beyond the NBBO.\17\
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\16\ See Exhibit 3 to SR-CBOE-2016-084.
\17\ See id.
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For complex orders that are otherwise eligible for AIM,\18\ the AIM
eligibility requirements of CBOE Rule 6.74A(a) apply in the same manner
as they apply for simple orders. Thus, a complex order may be executed
via AIM at a net debit or net credit price provided, for example, that
an Agency Order that is a complex order of 50 contracts or more (as
determined by the size of the smallest leg) is stopped at the better of
the NBBO or the Agency Order's limit price (if the order is a limit
order).\19\ Similarly, a complex order of fewer than 50 contracts (as
determined by the size of the smallest leg) may be executed via AIM at
a net debit or net credit price provided that the Agency Order is
stopped at the better of (A) the NBBO price improved by one minimum
price improvement increment, which increment shall be determined by the
Exchange but may not be smaller than one cent; or (B) the Agency
Order's limit price (if the order is a limit order).\20\
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\18\ A ``complex order'' is any order involving the execution of
two or more different options series in the same underlying security
occurring at or near the same time in a ratio that is equal to or
greater than one-to-three (.333) and less than or equal to three-to-
one (3.00) (or such lower ratio as may be determined by the Exchange
on a class-by-class basis) and for the purpose of executing a
particular investment strategy. For the purpose of applying the
aforementioned ratios to complex orders comprised of both mini-
option contracts and standard option contracts, ten (10) mini-option
contracts will represent one (1) standard option contract. Only
those complex orders with no more than the applicable number of
legs, as determined by the Exchange on a class-by-class basis, are
eligible for processing. See CBOE Rule 6.53C(a)(1).
\19\ See CBOE Rule 6.74A(a)(2).
\20\ See CBOE Rule 6.74A(a)(3). The Commission notes that, as
with simple orders, AIM currently requires price improvement for
complex Agency Orders where the smallest leg is fewer than 50
contracts.
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In September 2016, there were 5,982 complex orders processed via
AIM with an order size of 50 contracts or more (as determined by the
size of the smallest leg), and there were 214,986 complex orders
processed via AIM with an order size of fewer than 50 contracts (as
determined by the size of the smallest leg).\21\ With regards to having
no minimum size requirement for orders to be eligible for the Auction,
the Exchange believes small complex orders benefit from the price
improvement offered by AIM in the same manner that small simple orders
benefit from the price improvement offered by AIM, and that it is
therefore appropriate to approve the no minimum size pilot on a
permanent basis.\22\ The Exchange believes that, in addition to the
simple order market, the complex order market both within and outside
of AIM is robust, and therefore it is appropriate to approve the no
minimum size pilot on a permanent basis.
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\21\ See Amendment No. 1.
\22\ See id.
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B. Early Conclusion of the AIM
CBOE Rule 6.74A(b)(2)(E) provides that the AIM will conclude
prematurely anytime there is a quote lock on the Exchange pursuant to
CBOE Rule 6.45A(d). This condition is operating as part of the current
Pilot.\23\
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\23\ See Interpretation and Policy .06 to CBOE Rule 6.74A.
---------------------------------------------------------------------------
As with the no minimum size requirement, the Exchange has gathered
data on the number of times an AIM auction was terminated early because
of a quote lock on the Exchange pursuant to CBOE Rule 6.45A(d). From
January through June 2015, for example, there were less than two
Auctions ended early per month because of a quote lock. Thus, for both
simple and complex orders, due to the infrequency with which a quote
lock terminates an AIM auction, the Exchange believes permanent
approval of the pilot program to end AIM auctions early when there is a
quote lock on the Exchange will have a de minimis impact on the
marketplace.\24\
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\24\ See Notice, supra note 3, at 90014. See also Amendment No.
1. The Exchange further notes that modifying the ``Quote Lock''
timer, which allows quotes from two or more CBOE Market-Makers to
remain locked for a given time interval prior to trading with one
another, will not impact AIM. See CBOE Rule 6.45A(d)(i)(B) and RG16-
158.
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C. FLEX AIM Pilot
Currently, in order to initiate a FLEX AIM auction, the initiating
Trading Permit Holder must stop the entire Agency Order as principal or
with a solicited order at the better of the BBO or the Agency Order's
limit price. For purposes of CBOE Chapter XXIVB, the term ``BBO'' means
the best bid or offer, or both, as applicable, entered in response to a
Request for Quotes (``RFQ'') or resting in the electronic book.\25\
According to the Exchange, generally speaking, there is no existing BBO
prior to a FLEX AIM because there either has not been an RFQ or a FLEX
Order with the same terms as the order to be auctioned in FLEX AIM.\26\
Therefore, the Exchange notes, the data does not show observable price
improvement beyond the BBO because, generally speaking, no BBO exists
prior to a FLEX AIM.\27\ The Exchange has proposed to modify its FLEX
AIM rules to require the Agency Order to be stopped at the better of
the BBO price improved by one minimum price increment or the Agency
Order's limit price, although the Exchange does not believe there will
be any difference in the way FLEX AIM functions. The Exchange notes
that there likely will continue to be no BBO prior to a FLEX AIM;
however, the Exchange believes FLEX AIM will continue to offer the
possibility for price improvement beyond the initiator's stop
price.\28\
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\25\ See CBOE Rule 24B.1(a). RFQ is defined as the initial
request supplied by a Submitting Trading Permit Holder to initiate
FLEX bidding and offering. See CBOE Rule 24B.1(r).
\26\ FLEX Order is defined as (i) FLEX bids and offers entered
by FLEX Market-Makers and (ii) orders to purchase and orders to sell
FLEX Options entered by FLEX Traders, in each case into the
electronic book. See CBOE Rule 24B.1(j).
\27\ See Notice, supra note 3, at 90014.
\28\ See id.
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[[Page 8461]]
III. Discussion and Commission Findings
After careful review, the Commission finds that the proposed rule
change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to a national securities exchange
and, in particular, with Section 6(b) of the Act.\29\ In particular,
the Commission finds that the proposed rule change is consistent with
Section 6(b)(5) of the Act,\30\ which requires, among other things,
that the rules of a national securities exchange be designed to prevent
fraudulent and manipulative acts and practices, to promote just and
equitable principles of trade, to foster cooperation and coordination
with persons engaged in regulating, clearing, settling, processing
information with respect to, and facilitating transactions in
securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect customers, issuers, brokers and dealers.
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\29\ 15 U.S.C. 78f(b). In approving this proposed rule change,
the Commission has considered the proposed rule's impact on
efficiency, competition, and capital formation. See 15 U.S.C.
78c(f).
\30\ 15 U.S.C. 78f(b)(5).
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As part of its proposal, the Exchange provided summary data on
Exhibit 3 of its filing for the period January through June 2015, which
the Exchange and Commission both publicly posted on their respective
Web sites. Among other things, this data is useful in assessing the
level of price improvement in the Auction, in particular for orders of
fewer than 50 contracts; the degree of competition for order flow in
such Auctions; and a comparison of liquidity in the Auctions with
liquidity on the Exchange generally.\31\ Based on the data provided by
the Exchange, the Commission believes that the Exchange's price
improvement auction generally delivers a meaningful opportunity for
price improvement to orders, including orders for fewer than 50
contracts. In addition, the Commission notes that AIM currently
requires price improvement for Agency Orders of fewer than 50
contracts.\32\ The Commission further believes that the Exchange's
proposed modification to the FLEX AIM to require the Agency Order to be
stopped at the better of the BBO price improved by one minimum price
increment or the Agency Order's limit price will better align the FLEX
AIM auction rules with those applicable to standard AIM auctions and
will provide price improvement for additional FLEX AIM orders.
---------------------------------------------------------------------------
\31\ See Exhibit 3 to SR-CBOE-2016-084.
\32\ See CBOE Rule 6.74A(a)(3).
---------------------------------------------------------------------------
The Commission believes that the data provided by the Exchange
support its proposal to make the Pilot permanent. The data demonstrate
that the Auction generally provides price improvement opportunities to
orders, including orders of retail customers; that there is meaningful
competition for orders on the Exchange; and that there exists an active
and liquid market functioning on the Exchange outside of the
Auction.\33\ Thus, the Commission has determined to approve the
Exchange's proposed revisions to Interpretations and Policies .03 and
.06 to Rule 6.74A, Rule 24B.5A(a)(2), and Interpretations and Policies
.03 to Rule 24B.5A, and to approve the Pilot, as proposed to be
modified, on a permanent basis.
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\33\ See Exhibit 3 to SR-CBOE-2016-084.
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IV. Solicitation of Comments on Amendment No. 1
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether Amendment No. 1
is consistent with the Act. Comments may be submitted by any of the
following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number SR-CBOE-2016-084 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-CBOE-2016-084. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available
for inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-CBOE-2016-084 and should be
submitted on or before February 15, 2017.
V. Accelerated Approval of Proposed Rule Change, as Modified by
Amendment No. 1
The Commission finds good cause to approve the proposed rule
change, as modified by Amendment No. 1, prior to the 30th day after the
date of publication of the notice of Amendment No. 1 in the Federal
Register. As noted above, in Amendment No. 1, the Exchange described
additional data relating to complex orders submitted through AIM and
provided further support for its proposal to approve the aspects of AIM
currently operating on a pilot basis as applicable to complex orders.
Because Amendment No. 1 provides additional support for the Exchange's
original proposal and does not make any substantive changes to the
proposal, the Commission believes that good cause exists for
accelerated approval of the proposed rule change, as modified by
Amendment No. 1. The Commission further notes that the original
proposal was subject to a 21 day comment period and no comments were
received on the proposal. Accordingly, the Commission finds good cause,
pursuant to Section 19(b)(2) of the Act,\34\ to approve the proposed
rule change prior to the 30th day after the date of publication of the
notice of Amendment No. 1 in the Federal Register.
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\34\ 15 U.S.C. 78s(b)(2).
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VI. Conclusion
IT IS THEREFORE ORDERED, pursuant to Section 19(b)(2) of the
Act,\35\ that the proposed rule change (SR-CBOE-2016-084), as modified
by Amendment No. 1, be and hereby is approved on an accelerated basis.
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\35\ 15 U.S.C. 78s(b)(2).
[[Page 8462]]
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For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\36\
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\36\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-01614 Filed 1-24-17; 8:45 am]
BILLING CODE 8011-01-P